How to be sure that you are or not a Tax resident of France?

Your place of residence is the basis of any tax, investment and income planning. This point needs to be clear to know where to start.

There is a constant and complete confusion on defining the place of residence as, even though the rules governing residence are relatively clear, different interpretations are found within administrations.

If there is any doubt as to your place of residence, or if you could be considered resident of two countries, it is the provisions of the convention for the avoidance of double taxation which prevails.

Let’s take the example of the UK: article 3 of the Double Tax Treaty attempts to clarify the position.

The first criterion is “where is your home?”. Your home is considered to be the country where you have the closest “personal and economic links”, but this can still cause some doubt. In accordance with the judgement of a court case, a business man who spent very little time in France but had his family living and going to school in France, was considered as a resident of France.

Now, if you own a property in the UK (which is not rented out), which is thus considered as a “home”, the second criterion is “where do you spend most of your time?”. If you spend a similar amount of time between the two countries and none of the other criteria are conclusive, then it is the country of your nationality which will have the right to claim your residence. In general, therefore, the authorities are trying to work out in which country you are “based”, even if you travel considerably.

You are considered as resident upon your declaration of arrival to the French authorities: it is not the real date of your arrival which counts since no border controls exist.

What do I have to declare?

• You live in France and are tax resident of France?

Regardless of your nationality, you have to declare all your worldwilde income, whatever its source or country of origin.

Depending on the source and the country of origin, income will be treated and taxed differently.

If there is any doubt as to your place of residence, or if you could be considered resident of two countries, it is the provisions of the convention for the avoidance of double taxation which prevails.

Let's take some examples of UK income:

Property rental income and certain other foreign sourced income, such as public sector pensions or earned income from a foreign activity, should continue to be taxed in the UK, but you still need to declare the taxable amount on your French return. It won’t be taxed again in France, under the double taxation treaty, but it will be taken into account to work out at what rate other income should be taxed, and will have the effect of pushing your other income into a higher tax band.

Other pension income from private pensions and foreign state pension are assessed for tax in France and should be paid gross in the source country.

For the following types of income such as pension lump sums, tax exempt investments, dividends from foreign shares, premium bonds, offshore bank interest, capital gains tax and gites rental, it is advisable to ask assistance to complete your tax return.

• You live abroad and you have French assets?

Regardless of your nationality, you only have to declare income from French sources, even though they did not generate any revenue. Some of these assets will be taxable and other not.

The main categories considered as income from French sources are:

- income from immovable property situated in France or rights connected with such property;
- income from French movable property and any other stocks and shares invested in France;
- income from professional activities, whether employed or not, carried on in France or from for-profit transactions carried out in France;
- capital gains on the transfer of property rights when connected with businesses operated in France as well as immovable property situated in France;
- capital gains on the transfer of corporate rights when pertaining to companies having their head offices in France.

This list is not exhaustive, and for any other income not listed, please ask our tax team.

• Double taxation treaties

Double taxation treaties serve to prevent double taxation of income earned in one country by a resident of another country. It also makes clear the taxing rights between two countries on different types of income arising from cross-border economic activities. The agreements also provide for reduction or exemption of tax on certain types of income.

Please contact our tax team for any specific information on double taxation treaties.

• Tax forms

There are many different forms, but here are a few references that often apply to the expatriate community:

- Form 2042: this is the main tax from, which should include all of your worldwide income and gains.
- Form 2042 C (complimentary): this is an additional form, needed in various cases. The main ones are if you have any income from a personal business, such as furnished lettings or if you have paid any tax in another country which needs to be offset against French tax.
- Form 2047: this form, which must be completed by anyone receiving income from abroad, gives details of that income, even if the figures have already been mentioned on the main form 2042.
- Form 3916: this is necessary if you have any bank accounts outside France since you must provide annual details of these.

How does the French tax system work?

French tax system is one of self-assessment.

Tax is assessed at the level of the tax household, i.e. the family entity consisting of a single person, spouses (regardless of the marriage settlement) with their children and other dependants. In other words, the assessment basis is generally the total income of the different members of the tax household.

Barring exceptions, all income, regardless of its origin, is aggregated to determine an overall net income to which a single tax scale applies.

This scale has progressive income brackets:

Income band	Rate of tax
Up to €5,875	0%
€5,875 to €11,720	5.5%
€11,720 to €26,030	14%
€26,030 to €69,783	30%
Over €69,783	40%

The basis for assessing French income tax is that the combined income for the household is split into units, or “parts”. It is used to take into consideration the dependants and to lessen the impact of tax progressiveness accordingly.

For example, for a married couple this means the combined income is split equally between you. The half share is the applied to each of the tax bands as appropriate and the resulting tax calculation is then multiplied by two.

A married couple with children have the benefit of extra “parts” for their children (i.e. the children are considered to have earned part of the household income), as shown below, which further reduces the tax liability.

Married couple without children	2 parts
The first two children	½ part each
Third and subsequent children	1 part each

For example, a married couple with 4 children would be able to divide their combined household income into 5 “parts” with the various tax bands being applied to only one fifth of the total income. The resulting tax calculation is then multiplied by the number of “parts” (i.e. 5) in the household.

This may sound a very complicated method of calculation, but it has the benefit of keeping your marginal tax rate as low as possible.

In reality therefore, a large “household” will have to earn a very large taxable income before moving into the top tax band and, for the majority of couples, if one spouse earned the majority of the earned income or pension income, French tax is less than its UK counterparts for example.

Finally, there are certain cases where extra “1/2 parts” are allowed, such as if you are a widow, having raised children, who are now adult. It is therefore very important to complete the section on your personal situation as fully as possible.

When income tax is to be declared?

Income tax is assessed once a year on the taxable income which a tax household derives during a given calendar year.

Usually, returns have to be sent back to the tax administration before May 31, 2011, although the experience of the last few years has meant that we invariably receive an extension to this deadline, due to late production of the forms.

If it is your first return, tax forms are not sent by post: it is your reponsability to obtain the relevant forms. Once the first return has been completed, you will automatically receive the subsequent forms.

Notices of taxation are then received in the course of August for a payment in September.

I live abroad and I own a property in France that I am renting out. As I have not received rental income in 2011, do I need to complete an income tax return?

You should complete a 2011 income tax return, if you do not want to lose the benefit of deducting expenses incurred in 2011 for the property, such as loan interests, land tax, works… Loses may be carried forward for a few years.

I live in France, but I did not have any French income in 2011. Do I need to complete an income tax return?

Yes, if you had income from foreign source in 2011. Indeed, as tax resident of France, and regardless of your nationality, you have to declare all your worldwide income, whatever its source or country of origin. Depending on the source and the country of origin, income will be treated and taxed differently in accordance with the double taxation treaties.

No, if you had no income at all in 2011 whether from French or foreign source, even though it is advisable. Indeed, a notice of non-taxation may be required by certain bodies to obtain benefits or allowances. Said notice of non-taxation can only be obtained if an income tax return has been filled in to the tax administration.

I have received less rental income than I have paid interests on mortgage. Do I need to complete an income tax return?

Yes, you do need to complete an income tax return. When completing your tax return, you will be able to deduct, from the global rental income, all expenses incurred in 2011 for the property, such as loan interests, land tax, works… Loses may be carried forward for a few years.

I bought a French property in 2011 which I intend to rent out, but it will not be completed before 2013. Do I need to complete an income tax return?

Yes, you will need to complete an income tax return. Indeed, in France, when you rent a property, you acquire the benefit of deducting expenses incurred for said property. If your property to be completed in 2013 is intended to be rented out, you should fill in a 2011 income tax return even if your property is not competed yet so that, when you rent it later, you will thus have the benefit of deducting expenses incurred in 2011 for the property such as loan interests, land tax, works...

I do not rent out my French property at the moment, but I plan to rent it later on. Do I need to complete an income tax return?

Yes, you do need to complete an income tax return. Indeed, in France, when you rent a property, you acquire the benefit of deducting expenses incurred for said property. You should fill in a 2011 income tax return even if you do not rent out your property yet. Indeed, when you rent it later, you will thus have the benefit of deducting expenses incurred in 2011 for the property such as loan interests, land tax, works...